Period  4Q14/FY14

Actual vs. Expectations  4Q14 were within expectations with actual FY14 net profit of RM257.3m right on the dot of our estimate but 4% below market consensus.

Dividends  A 4th interim NDPS of 5.0 sen was declared in 4Q14 (ex-date: 10 Mar; payment date: 27 Mar), totalling FY14 NDPS to 20.0 sen, which is higher than our assumption of 15.0 sen. This implies a 111.8% payout in FY14, higher than its earnings.

Key highlights  From the lowest quarterly earnings since 1Q09, 4Q14 net income has rebounded strongly by 35% QoQ to RM61.3m on the back of 9% hike in revenue, thanks largely to a 9% higher NFO ticket sales and improved luck factor. The higher ticket sales were driven by: (i) three additional draw days of 46 from 43, and (ii) higher average ticket per draw of RM17.2m from RM16.9m. The estimated prize payout ratio (EPPR) fell to 65.5% from 66.4%.

 The 4Q14 net profit rose 9% YoY from RM56.1m despite revenue dipping 2% over the year. This was mainly helped by lady luck with EPPR dropping 1.5% from 67.0% previously. The drop in topline was attributable to lower average ticket sales by 4% from RM17.9m/draw in 4Q13 although 4Q14 had one extra draw from 45 draws previously.

Outlook  Luck factor remains the deciding factor as the prize payout ratio is not consistent from quarter to quarter.

Change to Forecasts  To reflect the latest operating data, we cut our FY15E earnings by 7% based on the change in assumptions of: (i) EPPR of 65% from 63%, (ii) draw days of 178 from 176, (iii) average ticket sales per draw of RM17.9m from RM18.4m, and (iv) effective tax rate of 24% from 25%. But there is no change in expected dividend payout ratio of 80%.

 Introducing FY16E-FY17E earnings expected to grow by 4%/2% on the back of: (i) EPPR of 65%, (ii) 178 draw days, (iii) 2% ticket sales growth rate, (iv) effective tax rate of 24%, and (v) 80% dividend payout.

Rating Maintain OUTPERFORM

Valuation  Post earnings revision, new DCF price target is now lowered to RM3.07 from RM3.31 (from RM3.59).

Risks to Our Call  A rise in gaming tax by the government

 Weaker-than-expected ticket sales and a higherthan- expected EPPR. 

Source: Kenanga